The Optimal Design of a Market
We study the optimal design of the rules of trade in a two-period market given that agents arrive at different times and may only trade with agents present contemporaneously. First period agents face a fixed cot of trading across periods, and their decisions of whether or not to trade in the second period result in externalities relative to the agents arriving in the second period. Given the non-convexities associated with the fixed cost, competitve trading rules can result in inefficienceis in such a market and, in fact, anonymity must be sacrificed to achieve efficiency. Efficient trading rules have a market maker (i.e., an agent who is given some market power and the right to trade across periods) who faces some competition within period trading, but not across periods. The efficient choice of who should be market maker can be made by auctionaing rights to this position. If there is uncertainty across periods, then efficient mechanisms may involve multiple market makers, and the optimal number of market makers depends on the cost of trading, level of risk aversion, and presence of scymmetric information.
|Date of creation:||Apr 1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas Gehrig, 1993.
"Intermediation in Search Markets,"
1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Baliga, Sandeep & Corchon, Luis C. & Sjostrom, Tomas, 1997.
"The Theory of Implementation When the Planner Is a Player,"
Journal of Economic Theory,
Elsevier, vol. 77(1), pages 15-33, November.
- Baliga, S. & Corchon, L.C. & Sjostrom, T., 1995. "The Theory of Implemetation when the Planner is a PLayer," Cambridge Working Papers in Economics 9512, Faculty of Economics, University of Cambridge.
- Luis Corchón & Sandeep Baliga & Tomas Sjöström, 1995. "The Theory Of Implementation When The Planner Is A Player," Working Papers. Serie AD 1995-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Matthew O. Jackson & Thomas R. Palfrey, 1998.
"Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining,"
Econometric Society, vol. 66(6), pages 1353-1388, November.
- Matthew O. Jackson & Thomas R. Palfrey, 1997. "Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining," Game Theory and Information 9711003, EconWPA.
- Ananth N. Madhavan, .
"Trading Mechanisms in Securities Markets,"
Rodney L. White Center for Financial Research Working Papers
16-90, Wharton School Rodney L. White Center for Financial Research.
- Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 217-25, April.
- Thomas Gehrig & Matthew Jackson, 1994.
"Bid-Ask Spreads with Indirect Competition Among Specialists,"
1107, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gehrig, Thomas & Jackson, Matthew, 1998. "Bid-ask spreads with indirect competition among specialists," Journal of Financial Markets, Elsevier, vol. 1(1), pages 89-119, April.
- Gehrig, Thomas & Jackson, Matthew O., 1997. "Bid-Ask Spreads with Indirect Competition among Specialists," CEPR Discussion Papers 1648, C.E.P.R. Discussion Papers.
- Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
- Roberto Serrano & Rajiv Vohra, 1997. "Non-cooperative implementation of the core," Social Choice and Welfare, Springer, vol. 14(4), pages 513-525.
- Saijo, Tatsuyoshi & Tatamitani, Yoshikatsu & Yamato, Takehiko, 1996.
"Toward Natural Implementation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 949-80, November.
- Bernhardt, Dan & Hughson, Eric, 1996. "Discrete Pricing and the Design of Dealership Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 148-182, October.
- Matthew 0. Jackson, 1989.
"Implementation in Undominated Strategies - A Look at Bounded Mechanisms,"
833, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jackson, Matthew O, 1992. "Implementation in Undominated.Strategies: A Look at Bounded Mechanisms," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 757-75, October.
- Bhaskar Dutta & Arunava Sen & Rajiv Vohra, 1994. "Nash implementation through elementary mechanisms in economic environments," Review of Economic Design, Springer, vol. 1(1), pages 173-203, December.
- Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985.
"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Glover Jonathan, 1994. "A Simpler Mechanism That Stops Agents from Cheating," Journal of Economic Theory, Elsevier, vol. 62(1), pages 221-229, February.
- Kyle, Albert S, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 317-55, July.
- Lu Hong, 1996. "Bayesian implementation in exchange economies with state dependent feasible sets and private information," Social Choice and Welfare, Springer, vol. 13(4), pages 433-444.
- Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November.
- Peck, James, 1990. "Liquidity without money: A General equilibrium model of market microstructure," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 80-103, March.
When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1186. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker)
If references are entirely missing, you can add them using this form.